why canadian income into 1040 trigger extra tax due

[regina]

Yesterday, we paid one account (20 yr experience) for filling up the US tax with a 1040 full year, seems that's the best option for us, after playing around couple of different options.

As soon as adding Canadian Income (30k) in and used 1116 for foreign tax credit (better than 2555 + 1116), we ends up owing over 2k Fed tax and 1k Cal state tax. (-200$ Fed, +700$ State, before adding Canadian Income)

Is that supposed the Canadian income should be out of US tax equation, since we already paid tax to Canadian CRA?

And also we heard from one accountant if oversea income less than 30k US $, then it can be not reported into 1040, is that true?

We are confused, why extra Canadian income would cause more US taxes? Are we double taxed?

Since the 4/15 due date is approaching, we are wondering whether there are any glitches of this forms, or that's supposed to be.

Any reply will be appreciated!

Regina

[nelsona]

Yes, anytime you add foreign income, you will pay a little more tax, regardless of howe much or little Cdn tax you paid. That is because the income is added at your MARGINAL rate, and the credit is given at your EFFECTIVE rate, which is lower. 2555 used to be much better but the changed the rules.

That is why it is NOT advantageous to have income from other countries, unless you can lower the foreign tax. I bet you have lots of foreign tax carryforward too.

The reason you include in the first year in US it is in order to file jointly, which reduces your US tax on all your other income.

And because any income you made after you departed canada (like RRSP withdrawal) must be reported anyways.

The statement about the $30K is ludicrous. Everything must be reported, even if it can later be excluded (which would be more like $80K on 2555).

I question why your pre-arrival income would be on your California return however, but I don' look into state taxes